2016 (7) TMI 577 - AT - Income Tax

Levy of penalty u/s 271(1) (c) - provision for bad debts and loss on sale of fixed assets - Held that - Merely submitting an incorrect claim in law for the expenditure would not amount to furnishing inaccurate particulars of income. It is undisputed that the impugned amounts were part of the schedules of the audited accounts and the AO noticed the omission from these accounts only. It is again undisputed that these accounts form a part and parcel of the return of income. The fact that the assessee immediately offered to rectify the mistake on detection is also undisputed. It is only that the claim of the bona fide of the assessee was not accepted by the department. It is also important to note that Explanation 1 to section 271(1)(c) cannot be applied where charge against the assessee is furnishing of inaccurate particulars of income since it provides a deeming fiction qua concealment of particulars of income only and consequently cannot be extended to a case where charge against the assessee is furnishing of inaccurate particulars of income. Hence in light of the judicial precedents as aforesaid discussed we are unable to agree with the findings of the authorities below on the imposition of penalty on the issue of provision for bad debts and loss sale of fixed assets not added back to the computation of income by the assessee. For allowability of the Write off of Bad Debts the assessee s case gets a stronger footing from the decision of the Hon ble Delhi High Court in its own case for AY 2002-03 wherein the Hon ble Delhi High Court has upheld the assessee company s policy of write offs thus supporting the assessee s plea that the write off of bad debts has been in dispute in different assessment years and therefore, to term it as furnishing of inaccurate particulars of income for the purpose of levy of penalty will be inappropriate. Hence, we are unable to agree with the findings of the lower authorities on this issue also. Penalty deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 on the addition of ?116.49 lakhs.
2. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 on the addition of ?63.96 lakhs.
3. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 on the addition of ?17.42 lakhs.

Issue-wise Detailed Analysis:

1. Imposition of Penalty on Addition of ?116.49 Lakhs:
The Assessing Officer (A.O.) observed that the assessee had written off sundry balances and provided for bad debts but did not add these amounts back in the computation of taxable income. The assessee attempted to rectify this mistake by filing a letter during the assessment proceedings. The A.O. held that the conditions for revising the return were not met and added ?116.49 lakhs to the income, subsequently imposing a penalty under section 271(1)(c). The First Appellate Authority upheld the penalty, stating that the assessee failed to provide true and complete particulars of income. The Tribunal, however, found that the omission was bona fide and the assessee had promptly sought to rectify the error. The Tribunal cited several judicial precedents, including the Supreme Court's decision in Price Waterhouse Coopers (P) Ltd. v. CIT, which held that inadvertent errors should not attract penalties. The Tribunal concluded that the penalty was not justified and directed its deletion.

2. Imposition of Penalty on Addition of ?63.96 Lakhs:
The A.O. disallowed the bad debts written off by the assessee due to a lack of evidence and imposed a penalty. The First Appellate Authority confirmed the penalty, noting that the assessee could not provide details of the bad debts. The Tribunal, however, observed that the issue of bad debts had been a subject of differing opinions in various assessment years. The Tribunal referred to the Supreme Court's decision in TRF Ltd. v. CIT, which held that it is sufficient if the bad debt is written off in the books of account. The Tribunal also noted that the assessee had consistently followed a global write-off policy. The Tribunal concluded that the disallowance arose from a difference in opinion rather than any deliberate attempt to furnish inaccurate particulars. Therefore, the penalty was not warranted, and the Tribunal directed its deletion.

3. Imposition of Penalty on Addition of ?17.42 Lakhs:
The A.O. treated the legal and professional expenses for software purchase and upgradation as capital in nature and disallowed ?17.42 lakhs, allowing depreciation instead. The First Appellate Authority deleted the penalty, acknowledging that the issue of treating software expenses as capital or revenue was subject to differing legal opinions. The Tribunal agreed with this view, stating that the benefit of doubt should be given to the assessee. Since different views were possible and the assessee's actions were not willful or deliberate, the penalty was not justified.

Conclusion:
The Tribunal set aside the impugned order and directed the A.O. to delete the entire penalty. The appeal of the assessee was allowed in full. The judgment emphasized that penalties under section 271(1)(c) should not be imposed for bona fide mistakes or differences in legal opinions, and the primary burden of proof lies with the Revenue to establish concealment or furnishing of inaccurate particulars. The Tribunal's decision was pronounced in the open court on 08.07.2016.